RON SANDLER, the former Lloyd’s of London chief, yesterday gave his seal of approval to the Government’s plans to introduce the new range of low-cost savings products he designed two years ago.
Mr Sandler told The Times that the Government’s proposals for a new suite of low-cost savings plans showed “strong progress” towards boosting saving levels, despite the Treasury’s decision to increase the rate at which firms can charge for the products. The report from the Treasury yesterday confirmed plans to raise the annual management charge on the products from the 1 per cent a year originally envisaged by Mr Sandler in his 2002 report. The new “stakeholder” products will have an initial management charge of 1.5 per cent a year, falling to 1 per cent after ten years.
The Government’s U-turn on the pricing cap came after industry threats to boycott the products if the 1 per cent cap was imposed.
Ruth Kelly, Financial Secretary to the Treasury, said the new pricing level “will allow the cost of basic advice to be incorporated under the cap, whilst maintaining excellent value for customers”. She said the Treasury would review the price caps after three years.
The new stakeholder suite will introduce a range of low- cost options. One product will be a deposit cash account with an interest rate set at within 1 per cent of the Bank of England’s base rate.
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The new Child Trust Fund accounts will fall into the stakeholder suite. The Government intends to make a payment of up to £500 for each child born after September 2002, which will be placed in the accounts. There will be a choice of two basic investment funds, both of which will have a limit of 60 per cent on the amount held in equities and property. One of the funds will be unit-linked, so the value of a holding will rise and fall with the performance of the investments. The other basic investment fund will contain an element of smoothing, protecting savers from the steep falls of bear markets but lose out on higher returns in a bull run. Stakeholder pensions, originally introduced in 2001, will be redesigned to fit in with the new suite of products. Providers will be able to charge 1.5 per cent a year on the funds accumulated in the first ten years, compared to the flat 1 per cent charge levied on the products at present.
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